Top Management Team Characteristics, Strategy Implementation and Performance of Tea Factory Companies in Kenya
Shadrack Mayende Wasike1*, Owino Odhiambo Joseph2
1Ph.D Candidate, School of Business, University of Nairobi, Kenya
2Lecturer, School of Business, University of Nairobi, Kenya
*Corresponding Author
Abstract- The study was designed to examine the indirect influence of top management team characteristics on performance of tea factory companies in Kenya. This study was guided by the upper echelons theory and the institutional theory. The objective of the study was to examine the influence of strategy implementation on the relationship between top management team characteristics and performance. A descriptive cross-sectional survey design was adopted. The population of the study comprised tea factory companies in Kenya managed by the Kenya Tea Development Agency Limited. Primary data were collected using structured questionnaire targeting factory unit manager, production manager, finance manager and field services manager. Rigour was tested by examining reliability scores and factor analysis. The reliability scores were high and within acceptable range for purposes of analysis. Results of factor analysis demonstrate high presence of construct and convergent validity. Data were analyzed through regression analysis. Our results support the supposition of indirect influence of top management team characteristics on performance. We empirically demonstrate that strategy implementation fully mediates the relationship between top management team characteristics and performance. The study contributes to the stock of knowledge by challenging the previously held belief that top management team characteristics directly influences performance. We conclude that organizational performance is the result of effective deployment of top management skills and experiences in the execution of strategy rather than the mere constellation of characteristics held by top managers.
Key words-Top Management Team Characteristics; Strategy Implementation; Performance
1. INTRODUCTION
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Top management team (TMT) drive organizational performance by coordinating strategy implementation and managing competitive threat with the goal of creating sustained competitive advantage in the industry. Organizational performance is a reflection of the characteristics of TMT members (Gerowitz, 1998; Irungu, 2007)[18][29]. Finkelstein and Hambrick (1996)[21] argue that superior organizational performance is a function of complex interactions between internal and external variables, key among them being strategy implementation. Strategy implementation continues to attract a lot of interest among scholars in strategic management (Al-Ghamdi, 1998[2]; Waweru, 2008[61]; Jalali, 2012[30]; Namada 2013). Several arguments on successful implementation of strategy have been advanced in extant literature (Feo & Janssen, 2001[17]; Dobni et al; 2012[16]; Machuki et al, 2012[38]). Although more focus has been directed to investigating enablers of strategy execution, some strand of research focus on obstacles to implementation of strategy (Okumus, 2003[46]; Shah, 2005[53]; Rahimnia, Polychronakis and Sharp, 2009[51]; Ali and Hadi, 2012[3]). The current study explores the strategy implementation debate from the standpoint of institutionalization and operationalization.
The role of top management team characteristics in strategy execution has attracted immense interest among scholars in the recent past. Hrebiniak (2008)[27] observes that implementation of strategy throughout the organization is a very difficult task for top management team. In light of this view, Buul (2010)[11] contends that strategy implementation has become the most important contemporary challenge faced by organizations. Previous empirical evidence suggests that majority of firms cannot successfully implement formulated strategy (Allio, 2005)[4]. Further, weak coordination and structural inertia at different levels of organizational hierarchy significantly affect the outcome of strategy implementation process.
Hrebiniak (2008)[27] posits that strategy implementation can be enhanced through institutionalization and operationalization. Institutionalization of strategy involves aligning all internal aspects of the organization to the strategy being implemented (Waterman, Peters and Philips, 1980[60]; Machuki et al., 2012[38]). Operationalization of strategy encompasses splitting the strategy into measurable components by developing a realistic work plan that specifies expected output, timelines, budget and assigning responsibilities to specific individuals within the organization (Alexander, 1985[1]; Okumus, 2003[46]; Buul, 2010[11]). Other considerations relevant to strategy implementation include careful and continuous monitoring of the competitive environment, improving communication activities and building consensus as well as commitment to strategy (Beer & Eisenstat, 2000; Schaap, 2006).
Nyamwanza and Mavhiki (2014) argue that strategy implementation process requires TMT of an organization to develop, utilize and amalgamate organizational resources. Although this position emphasizes the nature of work and how top managers carryout their duties, attributes of managers is critical in the entire strategy implementation process. The attitude and perspective adopted by top managers depends to some extent on their personal attributes. Gupta and Govindarajan (1984)[20] established that greater functional experience, willingness to take risk and tolerance for ambiguity on the part of the TMT contributes to effective strategy implementation and performance. While it is important to note that several studies have investigated the relationship between TMT characteristics and performance, strategy implementation has been the missing link. Therefore, knowledge on the indirect influence of TMT characteristics on organizational performance particularly in the Kenyan tea factory industry remains unanswered. Our study attempts to examine the influence of demographic, psychographic and behavioural characteristics of top management team on organizational performance. Secondly, the study seeks to determine the influence of strategy implementation on the relationship between top management team characteristics and performance.
2. THEORY/LITERATURE REVIEW
2.1 Upper Echelons Theory
The upper echelons theory assumes that complex and unpredictable situations are not objectively determined, but rather vary from one context to another and hence, are merely interpretable (Hambrick, 2007)[25]. The major supposition of the theory is that organizational processes and outcomes are partially predicted by the characteristics of the dominant coalition of powerful actors in the organization. Tacheva (2007)[57] suggests that the limitations of top management team members influence organizational problem diagnosis and decision outcomes. The theory argues that actions taken by top executives are dependent on the executive’s functional background and demographic profile consisting of age, gender, education and ethnic orientation (Hambrick, 2007)[25].
The upper echelons theory focuses on the collective characteristics of top management team (TMT) that is believed to produce greater performance outcomes than the inadequate efforts of individual chief executive. Although the upper echelons theory provides the basis for linking TMT with performance, its reliance on demographic characteristics as proxies of TMTs’ cognitive frames (Hambrick & Mason, 1984)[22] renders it inadequate for explaining the indirect relationship between top management team characteristics and organizational outcomes. Furthermore, the upper echelons theory takes an inside focus without due consideration to external influences on performance. Therefore, the population ecology (Hannan & Freeman, 1977[26]) and the new institutional theory (Dimaggio, Paul & Powell, 1983)[15] argue that top management team has little effect on organizational outcomes because majority of the firms are exceedingly inertial, swept away by external forces, and constrained by a host of conventions and norms. Although the perceptual model of strategic choice is the genesis of upper echelons theory (Canella & Holocomb, 2005)[14], little attention has been paid to analyzing how the perceptions of individual top management team members combine to make team based decisions. Consequently, the suppositions of the upper echelon theory have resulted to significant research on top management teams but with conflicting results on organizational outcomes (Marimuthu & Kolandaisamy, 2009[39]; Muchemi, 2013[42]; Kinuu, 2014[32]).
2.2 The Institutional Theory
Institutional theory focuses on the deeper and more resilient aspects of social structure putting into consideration the processes by which structures such as schemes, rules, norms and routines become established as authoritative guidelines for social behavior (North, 1992[43]; Scott 2004[52]). Besides explaining the alignment of a firm’s strategy with internal and external factors of the organization (Machuki et al., 2012[38]); the institutional theory examines the preferences, behaviours and actions of organizations and individuals therein. Further, institutions operate at different levels of jurisdiction and are subject to both incremental and discontinuous change processes. According to Thoenig (2011)[59] the two dominant perspectives of institutional theory are historical institutionalism and new institutionalism that seek cognitive and cultural explanation of social and organization phenomenon. The historical institutionalism views organizational structure as an outcome of politics and policies that defy incremental change (Graftstein, 1992)[19]. On the other hand, the new institutionalism maintains that policy making and implementation should consider the goals pursued by the various units, how opportunities are identified and the process through which resources and support are mobilized for decision making and planned action.
Organisations operating in varying institutional environment face diverse pressures some of which exert fundamental influences on implementation of strategy (Porter, 1980)[50]. The institutional environment can strongly influence the development of formal structures in an organization (Dimaggio, Paul & Powel, 1983)[15]. Considering that organizations operate under varying and dynamic institutional order, there is need for assessing the influence of strategy implementation on the relationship between top management team characteristics and performance.
2.3 Top Management Team Characteristics and Organizational Performance
The importance of top management team characteristics as organizational resource has been attracting increased research attention. Wiersema and Bantel (1992)[62]consider TMT as the dominant coalition of individuals responsible for setting the direction of an organization. The upper echelon theory postulates that top managers in an organisation make decisions that are consistent with managerial background characteristics (Kilduf, Angelmar & Mehra, 2000)[31]. Therefore, top executives bring to the decision table values and personalities that largely influence their interpretations of the situations they face and the choices they make (Hambrick, 2007)[25]. The upper echelon’s responsibilities are rarely within the exclusive domain of a firm’s Chief Executive Officer and the entire team share collective responsibility to determine organizational outcomes (Wiersema & Bantel 1992[62]; Tacheva, 2007[57]).Top management team is described by three dimensions consisting of demographic, psychographic and behavioural characteristics. While some scholars maintain that the behavioural characteristics of TMT are the most relevant (Papadakis & Barwise, 2002[47]; Hambrick et al., 2005)[24]; Awino et al. (2011)[7] posit that the key aspects of the top managers are demographics and psychographics. Although consensus on the relative influence of the three dimensions of TMT characteristics on performance is far from sight, little attention has been directed to comparative analysis. Previous studies have assessed demographics, behavioural and psychographics in isolation of each other (Irungu, 2007[29]; Kinuu, 2014[32]). Although the relationship between top management team characteristics and performance has been tested over the years and in diverse contexts (Irungu, 2007[29]; Marimuthu & Kolandaisamy, 2009[39]; Letting et al., 2012[36]), inconsistent results have been found. While Marimithu and Kolandaisamy (2009) found that TMT miscellany is not relevant in explaining performance; Awino et al. (2011)[7] demonstrate that TMT characteristics partially predict organizational performance.
The existence of individuals with diverse beliefs and views within TMT (Michel & Hambrick, 1992)[40] is potentially critical ingredients necessary for influencing organizational performance. Hambrick et al. (1996)[23] argue that there is a positive relationship between TMT characteristics and performance. In contrast, Waweru (2008)[61]established that the demographic characteristics of top management team have no statistically significant effect on organizational performance. Despite this controversy, top management team diversity has been positively linked to performance (Wiersema & Bantel, 1992)[62]. Team diversity provides the aperture through which organizations nurture creativity and use broader set of information sources to make critically assessed decisions that positively affect performance. The limited comparative analysis of the influence of various dimensions of TMT characteristics on performance and inconsistent results documented in literature provided the impetus to test the following hypotheses:
H1: There is a significant relationship between the demographic characteristics of top management team members and organizational performance
H2: There is a significant relationship between the psychographic characteristics of top management team and organizational performance
H3: The behavioural characteristics of the top management team is significantly associated with organizational performance
H4:The joint influence of demographic, behavioural and psychographiccharacteristics on performance is statistically significant
2.4 Top Management Team Characteristics, Strategy Implementation and Performance
Top managers spend more time and effort in the formulation of strategy without paying closer attention to the execution process. However, strategy implementation provides the important link between formulated strategy and success of the firm. Indeed, poor implementation generates failure of the right strategy. Therefore, the success of a business is determined by how well the chosen strategy is implemented. Top management team members are at the core of successful execution of strategy.
The dominant coalition at the top of the organizational hierarchy support strategy implementation by playing multiple roles that are driven by the attributes of the top managers (Li et al., 2008[37]; Sorooshian et al., 2010[55]; Azhar, et al., 2014[8]). The various tasks performed by top management team members at the strategy implementation phase include cultivating ownership of strategy by organizational members, improving communication throughout the organization to lessen resistance, enhancing allocation of resources and preparing realistic implementation plans (Alexander, 1985[1]; Dobni & Luffman, 2001[16]; Buul, 2010[11]). Therefore, top managers are obliged to create an enabling environment that accommodates unity and supports successful implementation of strategy.
However, many companies fail to execute well formulated strategies (Aosa, 1992[5]; Okumus, 2003[46]; Waweru, 2008[61]).
Speculand (2009)[56] maintains that members of the information processing centre underestimate strategy implementation challenges and consequently, they delegate communication management to other people within the lower ranks of the organizational hierarchy. Therefore, poor communication exacerbated by top management off sight attitude increases the likelihood of strategy implementation failure (Shah, 2005)[53]. As a result, organizational performance is adversely affected. Besides poor communication, strategy implementation failure arises from inadequate financing. In 1992, Aosa established that strong links between strategy and budget resulted to more successful implementation of strategy.